CAPITAL CURRENTS: HDTV patents and the FCC

I wrote about the FCC patent policies in May, but that was in the context of VoIP, Vonage and Verizon. Now the HDTV patent dispute has bubbled up, and that’s a more serious issue for the cable and broadcast industries, because it could stall the transition to digital TV.

A ‘patent troll,’ does
no research or inventing
or manufacturing, but simply buys and owns patent rights.

Rembrandt Technologies is what some call a “patent troll,” a company that does no research or inventing or manufacturing, but simply buys and owns patent rights. If it owns a patent that is widely employed, then it makes money by licensing that patent and charging licensing fees.

Very often, as in the Verizon/Vonage dispute, there is a question whether the patent is a valid patent (not emulating some earlier invention) or whether the defendant is actually using the patented invention. At this point, it is not clear whether those questions are relevant to this HDTV patent. The patent at issue is United States Patent 5243627, invented by employees of Paradyne, a Florida-based modem manufacturer that was acquired by AT&T in 1989. AT&T spun off Lucent Technologies in 1996, which then spun off Paradyne. During the period that AT&T owned Paradyne, it submitted one of the four HDTV systems to be tested by the FCC’s Advisory Committee on Advanced Television Systems (ACATS), and later was a member of the Grand Alliance.

The patent deals with interleaving and trellis coding. The patent application was filed in 1991 and granted in 1993, more or less at the same time that the ACATS was evaluating candidate HDTV proposals. The Grand Alliance was formed in May 1993 to develop a final HDTV standard, and completed its work in 1995.

The FCC adopted the digital TV standard in 1996, incorporating by reference ATSC Standard A/53. ATSC Standard A/53 has sections on interleaving and trellis coding. The experts will have to decide whether the particular interleaving and trellis coding techniques in the patent are used in the standard.

The 1996 FCC decision that adopted the standard had this to say about patents:

The proponents agreed to make any relevant patents that they owned available either free of charge or on a reasonable, nondiscriminatory basis and we stated that we intended to condition selection of a DTV system on such commitments.

We reiterate that adoption of this standard is premised on reasonable and nondiscriminatory licensing of relevant patents, but believe that greater regulatory involvement is not necessary at this time. We remain committed to this principle and if a future problem is brought to our attention, we will consider it and take appropriate action.

Somewhere in the numerous corporate transactions affecting AT&T in the past 15 years, AT&T sold off the rights to the trellis coding patent, and Rembrandt acquired those rights. And while AT&T agreed to license the patent on reasonable and non-discriminatory terms, Rembrandt feels no such obligation. It has sued Comcast, Cox, Charter and Cablevision, as well as ABC, CBS, NBC and Fox, alleging they are infringing on the patent, and seeking royalties that are claimed to be unreasonably high. The patent deals with RF channel coding, and while cable uses a different RF modulation than broadcasters, both broadcasters and cable use interleaving and trellis coding in the RF domain.

What can the FCC do? After all, the patent laws grant the patent owner a legal monopoly. But there have been court decisions dealing with refusal to license patents, and compulsory patent licenses have sometimes been the result. If we look back to the FCC’s 1961 decision adopting a standard for FM stereo broadcasting, we see that the FCC talked about “the patent policies of the Commission which are designed to obviate any restraint of trade or monopolistic practices in matters coming within its cognizance.” That language reflects Section 313 of the Communications Act.

So someone could complain to the FCC that Rembrandt is violating Section 313. The FCC could issue a notice, asking for comment on the alleged violation, possible remedies, and also asking for comment on what power the FCC has to adopt remedies. Maybe the FCC would ask whether it needs to postpone the 700 MHz auctions, which are now required to begin by January 28, 2008, since this patent dispute threatens to stall the digital transition. That would get people’s attention – particularly people in Congress.

Maybe the FCC does need specific statutory authority to impose compulsory patent licensing on Rembrandt. Under the circumstances that exist today, with Rembrandt refusing to license on reasonable terms, and the patent standing in the way of the digital transition, Congress would probably give the FCC whatever additional authority it needs.

What comes next? An FCC Office of Patent Licensing Royalties to regulate royalty rates? Maybe it won’t go that far.